Our Take: financial services regulatory update – March 14, 2025

Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.

Current topics – March 14, 2025

1. Crypto policy updates: Congress and the OCC take steps toward crypto clarity
2. Michelle Bowman to be new Fed Vice Chair for Supervision
3. New York takes steps on consumer protection
4. On our radar

1. Crypto policy updates: Congress and the OCC take steps toward crypto clarity

What happened? The past week saw the following developments on digital asset policy:
- On March 7^th, the OCC released an interpretive letter (IL 1183) reaffirming the permissibility of a range of cryptocurrency related activities including custody, node operations/validation and certain stablecoin activities.
- On March 14^th, the Senate Banking Committee (SBC) voted 18-6, including five votes from Democrats, to advance the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.
What does the GENIUS Act contain? The GENIUS Act would create licensing and regulatory requirements for stablecoin issuers, specifying that the OCC will oversee stablecoin issuers with a market cap of above $10 billion while those with below $10 billion will be regulated by the states. It also contains requirements that stablecoins are backed by US dollars or highly liquid assets on a 1:1 basis; that issuers provide transparency on reserve composition and publish monthly liquidity reports; and requirements regarding consumer protection and anti-money laundering.
What does IL 1183 do? The letter outlines the following changes and clarifications to OCC crypto policy:
- Reverses previous Administration policy. IL 1183 rescinds the OCC’s November 2021 IL 1179 – which dictated that federally chartered banks should notify their supervisory office and obtain written non-objection prior to engaging in crypto-related activities. It also withdraws the OCC from the following joint statements with other regulators:
  - Crypto-Asset Risks to Banking Organizations, which outlines a lengthy list of risks including fraud and scams; legal uncertainties related to custody and ownership rights; price volatility; stablecoin run risk; concentration risk; lack of mature risk management and governance practices; and consumer harm.
  - Liquidity Risks from Crypto-Asset Market Vulnerabilities, which provides expectations for sound liquidity risk management and highlighted key risks from crypto assets.
- Clarifies acceptable activities and expectations. The letter confirms the validity of three ILs issued during the first Trump Administration, which provide that banks can engage in the following crypto activities:
  - Providing custody services for crypto assets, including managing crypto assets on behalf of customers;
  - Holding deposits that serve as stablecoin reserves; and
  - Using independent node verification networks and stablecoins for payment activities.
- Highlights need for sound risk management. IL 1183 also reaffirms that banks must comply with applicable laws and conduct the permitted crypto-related activities in a safe, sound and fair manner. It states that banks should develop and implement all crypto-related activities with sound risk management and governance.
What’s next? The GENIUS Act will proceed to the full Senate for a vote and will need to get at least 60 votes to overcome a filibuster. It will need to be reconciled with the House’s STABLE Act before it passes in either chamber of Congress.

Our Take

Long-awaited clarity for stablecoin issuers is nigh. The passage of the GENIUS Act out of Committee represents a major step toward regulatory clarity for stablecoin issuers following years of on-and-off debate in Congress. While details need to be worked out to reconcile the bill with the House’s STABLE Act, particularly regarding the permissibility of nonbank entities to issue stablecoins, we expect the bill will eventually pass both chambers of Congress and be signed into law. Banks will then need to develop approaches to how stablecoins will fit into their strategy; how they will manage funding and asset liquidity risk; how they will manage operational risk considerations including technology implementation and cyber risk; and how they will need to enhance their compliance programs to meet regulatory expectations around AML and KYC.

The OCC’s new direction is music to the ears of banks looking to engage in crypto activities. The OCC’s interpretive letter will encourage banks to begin developing and executing crypto strategies and enable those that have been preparing crypto strategies to more quickly unleash them. That said, it is important to note that other federal bank supervisors have not yet followed suit, and many aspects of the overall regulatory framework remain to be addressed by the President’s Working Group on Digital Asset Markets. In the meantime, banks should carefully assess risk and compliance frameworks, processes, capabilities, and controls to identify necessary enhancements to support crypto activities as the race to enter the market begins. Examples of expected services include:

Custody. Providing custody services is the first step for firms’ ability to enter the market. Banks should determine whether building custody capabilities internally or acquiring them through a vendor would be better suited for their strategies. They should also assess whether their cybersecurity and third-party risk management programs require enhancements to protect consumers and ensure operational resilience.
Lending against crypto. Lending and other liquidity services are a logical next step after providing custody services. In addition to traditional finance considerations such as valuation and collateral management, banks should consider whether to enhance frameworks to handle more volatile assets and whether to assess the sufficiency of existing model validation.
Providing traditional banking services to crypto businesses, including holding stablecoin reserves, offering payment services, and providing services to crypto exchanges and mining firms. Banks that choose to provide such services should assess the impact of stablecoin redemption risk to their liquidity programs and how volatility in crypto markets could impact deposit flows. They should also consider whether to enhance existing client segmentation frameworks to determine whether new or differentiated risk factors are necessary for onboarding.

The actions from this past week have opened the door for a wide variety of crypto activities. New products and services come with attendant risks that will be essential for banks to manage to ensure that these innovations develop in a way that protects consumers, promotes safety and soundness, and protects financial stability.

2. Michelle Bowman to be new Fed Vice Chair for Supervision

What happened? Consensus reporting this week is that President Trump will nominate Fed Governor Michelle Bowman to be the new Vice Chair for Supervision.
What are Bowman’s policy positions? Throughout her tenure as a Fed Governor, Bowman has regularly spoken and issued statements on her policy views, including on:
- Regulatory tailoring. Bowman has consistently supported regulatory tailoring for smaller banks, arguing that community and regional banks should not face the same capital and liquidity requirements as large global banks. She has warned that over-regulation can reduce credit availability and harm local economies.
- Stress testing and capital. On September 10th, 2024 Fed Governor Michelle Bowman gave a detailed speech on the future of stress testing and the stress capital buffer framework. She outlined concerns regarding (1) volatility in year-over-year results, (2) linking stress testing outcomes with capital through the stress capital buffer, (3) transparency over models and process, and (4) the potential overlap with other capital requirements resulting in increased capital requirements. She suggested several potential policy changes to address these concerns, such as averaging results over multiple years, constraining variability in annual stress test scenario design, providing more detailed descriptions of the Fed’s models, and extending the compliance time frame for adjusting to new stress capital buffers. Separately, Bowman has criticized the Basel III Endgame proposal, arguing that it imposes excessive capital burdens on banks, potentially restricting lending.
- Supervision. Following the 2023 regional bank failures, Bowman argued that supervisors “failed to sufficiently identify and prioritize the appropriate risks.” She has called for more proactive monitoring of core financial risks rather than relying on backward-looking compliance checklists and focusing on “broader, qualitative, and process- and policy-oriented risks.” Most recently, she has criticized the opacity of supervisory expectations that are delivered as part of the examination process, and thus revealed after-the-fact as criticism. She has also argued that subjective examiner judgments on non-financial risks can misrepresent the true condition of financial institutions, citing the most recent Supervision and Regulation Report’s co-existing findings that only a third of large financial institutions have satisfactory ratings across all components while most of the institutions meet capital and liquidity expectations.
- Innovation and Emerging risks. Bowman has called for regulators to foster innovation, while also stressing that cybersecurity risks, financial fraud, and the rapid rise of fintechs require more attention from regulators, particularly to the extent that they drive activity out of a regulated entity into a service provider. Moreover, she has called for stress testing and risk assessments to better account for operational risks, including cyber threats and vulnerabilities associated with third-party technology providers.
What’s next? If formally appointed, Bowman will have a hearing before the SBC followed by a vote in the full Senate.

Our Take

The industry gets their person. Assuming she is nominated and confirmed as VCS, Michelle Bowman would provide the industry with a more sympathetic direction for Fed regulatory and supervisory policy. A former banker and bank supervisor, she understands firsthand both industry perspectives and the supervisory process, and she can follow through on the direction described above to refocus Fed supervision on core financial risks through examination procedures and mandates. Her work will not be without challenges. On stress testing, she will have to navigate reforms in the context of an outstanding lawsuit. For Basel III, she will have to develop an interagency approach to a reproposal that ultimately achieves a more capital neutral impact. On tailoring, she will have to figure out how to recalibrate supervisory expectations to ensure the practice in the field aligns to the original intent of the statute. And she will have to drive the Fed’s approach to innovative products such as crypto and stablecoins while being on the outside of the President’s Working Group on Digital Asset Markets.

3. New York takes steps on consumer protection

What happened? On March 13^th, New York Attorney General (AG) Letitia James advanced a bill through state Senator Leroy Comrie, the Fostering Affordability and Integrity through Reasonable (FAIR) Business Practices Act, a bill “to protect New Yorkers from a wide array of scams, including deed theft, artificial intelligence (AI)-based schemes, online phishing scams, hard-to-cancel subscriptions, junk fees, data breaches, and other unfair, deceptive, and abusive practices.” This followed a March 5^th meeting of the Conference of State Bank Supervisors (CSBS) to discuss 2025 priorities, consumer protection, and financial access issues.
What would the FAIR Business Practices Act do? The Act would introduce several new requirements for companies operating in New York:
- Expanded definitions of unlawful practices. Financial institutions would need to comply with new definitions of unfair, deceptive and abusive acts or practices (UDAAP), including any acts that cause substantial injury to consumers, mislead consumers, or take advantage of consumers' lack of understanding of financial products.
- Elimination of court-imposed exceptions. The bill would remove exemptions that previously shielded businesses from liability if their actions did not directly impact the public or were isolated incidents. Financial institutions could be held accountable even if a deceptive act affects only a single business or individual.
- Private right of action and increased penalties. Consumers, small businesses and nonprofits would be able to sue financial institutions for violations and financial institutions would not be able to rely on previous defenses that their actions complied with federal regulations unless specifically authorized. Higher penalties would apply for unfair financial practices targeting seniors, veterans, individuals with disabilities, and non-English speakers.
- More AG authority. The AG would gain authority to investigate financial institutions suspected of engaging in unfair or abusive practices and could seek injunctions, restitution, and penalties without having to prove broad public impact.
What’s next? The bill will need to be introduced in the New York State Senate and/or Assembly and then be assigned to a relevant committee.

Our Take

States stepping up. With CFPB enforcement eroding at the federal level, states like New York are moving to fill the gap. As currently written, the FAIR Business Practices Act could have significant impact on financial institutions doing business in New York. They would need to reassess their activities against expanded UDAAP definitions and strengthen their compliance programs to confront increased risk of lawsuits from individual consumers, businesses and the state as well as higher penalties. If it is passed, there is a strong likelihood that financial institutions will challenge this law, arguing that the National Bank Act and Dodd-Frank Act provide federal preemption for national banks, limiting states’ ability to impose additional consumer protection rules that affect lending, fees, and disclosures. It will take time for this bill to work through the New York legislature and for any legal challenges to play out, but financial institutions should not underestimate the determination of New York, and likely other states like California and Illinois, to increase consumer protection oversight in the absence of CFPB enforcement. Accordingly, financial institutions should closely follow actions across the states and prepare to adapt to a fragmented compliance environment that may raise preemption questions requiring resolution through the courts.

4. On our radar

These notable developments hit our radar recently:

Judges issue orders requiring rehiring of fired federal agency employees. On March 13th, federal judges in California and Maryland issued orders requiring the mass reinstatement of fired federal employees at 19 federal agencies. First, a California federal court ordered the Defense, Treasury, Energy, Interior, Agriculture and Veterans Affairs departments to “immediately” offer all fired probationary employees their jobs back. Later that day, a Maryland federal court ruled that the administration had implemented “reductions in force” without providing legally required notice to state governments and ordered the mass reinstatement of fired probationary employees at 18 agencies. The agencies impacted by this order include the Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Labor, State, Transportation and Treasury, among others. The Administration has appealed the district court rulings to the Supreme Court.

House Financial Services Committee (HFSC) stablecoin hearing. On March 11^th, the HFSC held a hearing titled “Navigating the Digital Payments Ecosystem: Examining a Federal Framework for Payment Stablecoins and Consequences of a U.S. Central Bank Digital Currency.” The hearing examined the promise of blockchain technology, specifically in payments with stablecoins and discussed how the Committee’s STABLE Act will impact payment stablecoin issuers, protect consumers, and foster competition and innovation.

CFTC withdraws registration requirement. On March 13^th, the CFTC’s Division of Market Oversight (DMO) announced it would be withdrawing the Staff Advisory on swap execution facility (SEF) registration requirements in its entirety, effective immediately. DMO cited regulatory uncertainty regarding whether certain entities that operate in the swaps market are required to register as SEFs as the reasoning for withdrawing the original advisory letter.

Debanking legislation advances out of committee. On March 13^th, the Senate Banking Committee voted to advance Chairman Scott’s Financial Integrity and Regulation Management (FIRM) Act out of committee. The FIRM Act will eliminate all references to reputational risk as a measure to determine the safety and soundness of regulated financial institutions. The FIRM Act will be sent for a vote in the full chamber.

SEC Chair challenges proposed rule on crypto trading venues. On March 10^th, SEC Acting Chairman Uyeda spoke at the 2025 annual Washington Conference of the Institute of International Bankers, and highlighted areas in which he believes the SEC can improve the efficiency and resiliency of the U.S. treasuries market. During his remarks, he expressed his belief that the SEC had made a misstep by equating the regulation of Treasury markets with attempts to impose stringent oversight on the burgeoning crypto market and emphasized the need to refocus the proposal on its original intent, which aimed to include proprietary trading firms that actively trade US Treasuries.

Pulte confirmed by Senate. On March 13th, Bill Pulte was confirmed by the Senate to lead the Federal Housing Finance Agency for the Trump Administration. As head of the Federal Housing Finance Agency (FHFA), Pulte will help oversee the government-charted system created to help support home ownership.

CFPB seeks pause in credit card late fee rule litigation. On March 12th, the CFPB requested a stay on pending deadlines in the case challenging the agency’s rule capping credit card fees at $8. In the court filing, the CFPB noted that the bureau “respects this Court’s ruling granting a preliminary injunction and considering plaintiffs’ likelihood of success on the merits of their claims” and is planning to resolve the case within the next 30 days.

Download Our Take: PwC financial services update – March 14, 2025

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Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.

Current topics – March 14, 2025

1. Crypto policy updates: Congress and the OCC take steps toward crypto clarity

Download Our Take: PwC financial services update – March 14, 2025

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